Transcript from the spring forecast

EU Economic governance
European Commission
Directorate-General for Economic and Financial Affairs
Communication
Alexis Yamajako
Information and Communication Officer
2015: The €
4
Growth backed by tailwinds
• lower oil price
• euro depreciation
• supportive
macroeconomic
policies
(Accomodative monetary
and broadly neutral fiscal)
5
Growth decomposition 2015
(from the spring forecast)
Table 1:
Euro area GDP growth decomposition
2015
Euro area GDP growth
-
Potential output growth
Oil price decline
Monetary conditions
Geopolitical tensions
Residual
1.5
0.8
0.5
0.8
-0.2
-0.4
Major new elements since Spring:
- Slowdown of world trade
- Arrival of asylum-seekers
6
External environment (2)
China's trade volumes
fell in 2015-H1…
…but also other EMEs
matter for EU export growth
7
The EA/EU outlook
Euro area GDP forecast
EU: 1.9% (2015), 2.0%
(2016), 2.1% (2017)
growth decomposition 2016
8
Investment still weak
Investment recovery weak by
historical standards and…
Past recoveries
Current recovery
…only a moderate increase
in equipment investment
2009-11
index
107
106
105
104
103
102
101
100
99
98
97
Quarters
0
1
2
3
4
5
6
7
8
Note: Past recoveries included are those from the mid1970s, early-1980s and early-1990s.
9
Private consumption robust
Real disposable income …
…supports private
consumption
EA private consumption: 1.7% (2015), 1.7% (2016), 1.5% (2017)
EU private consumption: 2.1% (2015), 2.0% (2016), 1.8% (2017)
10
Growth differences persist
Real GDP growth in
2016 (%)
Gradual normalisation of inflation
5
y-o-y %
Energy and
unprocessed
food [pps.]
4
3
forecast
2
Other
components
(core inflation)
[pps.]
1
0
HICP, all
items
-1
-2
08 09 10 11 12 13 14 15 16 17
Risks
Risks to growth:
Tilted to the downside
Risks on the upside
•
Larger / longer impact of
"tailwinds"
•
Stronger rebound in global
growth
•
Impact of structural reforms
Risks on the downside
•
Stronger or more protracted
slowdown in emerging markets
•
Uncertainty, financial market
instability
•
Geopolitical tensions
•
Fading tailwinds not replaced
•
Volkswagen
13
Demographic factors
Asylum seekers are catching
the news
Migration more generally on
the rise
1,200,000
1,000,000
800,000
Asylum applicants
2015 projection
600,000
400,000
200,000
0
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Source: Eurostat, DG ECFIN extrapolation; Member State projections
14
Arrival of asylum-seekers
1. How many people expected in 2015-2017?
Refugee inflows for main transit countries
Italy
Greece
Hungary(1)
2014
2015
2014
2015
2014
2015
Non-EU national
arrivals
170,000
165,000
40,000
500,000
20,000
250,000
Asylum applicants
65,000
80,000
7,500
12,000
40,000
330,000
Asylum applicants
(% of population)
0.11%
0.13%
0.07%
0.11%
0.40%
3.35%
Refugee inflows for main destination countries
EU 28
2014
2015
Germany
2014
Asylum applicants 550,000 1,200,000 173,000
Asylum applicants
(% of population)
0.11%
0.24%
0.21%
Sweden
France
UK
Austria
Belgium
Netherlands
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
700,000
75,000
165,000
60,000
61,000
32,000
40,000
25,675
46,000
15,000
37,000
22,000
40,000
0.86%
0.78%
1.69%
0.09%
0.09%
0.05%
0.06%
0.30%
0.54%
0.13%
0.33%
0.13%
0.24%
2. Fiscal impact (immediate)
• Costs/head differ accross "transit" and "destination" countries
• Indications from MS so far: between 0.1 and 0.3% of GDP
15
Arrival of asylum-seekers (2)
3. Labour supply impact (medium-term)
 Depends on rate of recognition as refugee, working age,
skills, integration policies
4. Simulations suggest positive but small impact on EU;
larger for major destination countries
 EU no more than ¼% (cumulated) by 2017
 DE up to 0.6% (cumulated) by 2017
16
•Programme countries
Ireland: Economic Adjustment Programme agreed in December 2010 >> a joint financing
package of €85 billion for 2010-2013. Exit end 2013. Now post-Programme surveillance
Spain: for bank recapitalisation agreed by the Eurogroup in July 2012 for 18 months > up to
€100 billion >> € 38.9 billion actually used. Exit January 2014. Now post-Programme
surveillance
Portugal: Programme adopted by Eurogroup 17 May 2011 for 2011 to mid-2014 with package of
€78 billion. € 76.9 paid out. Now post-Programme surveillance
Cyprus: agreed by May 2013 for 2013-2016 and up to €10 billion (ESM up to € 9bn, IMF
expected € 1bn). ESM paid out so far € 5.7bn, last in Q1/2015; IMF €0.5bn)
Greece: Two programmes. First paid out €73bn (EAMS 52.9 + IMF 20.1) May 2010 – December
2011. Second paid out since March 2012: €153.6bn (EFSF 141.9 + IMF 11.74). Last payment
made in August 2014 of € 1bn. Total: €226.6bn.
Max: € 240bn.
Crisis timeline
Assistance programmes +
EA financial backstop
Bank recapitalizations + guarantees
2007 Subprime
crisis
Excess credit +
prolonged upswing
+ expectations
2008 –
Financial
crisis
Defaults
cause bank
losses,
distrust rises
2009 –
Economic
crisis
Credit
crunch; high
risk aversion
hits trade &
investment
2010 –
Sovereign
debt crisis
2013 – 2015
further
reforms,
investment,
fiscal
responsibility
2011 – 2012
systemic crisis
of the euro?
Recession hits
tax revenues;
welfare
spending
rises; GDP
denominator
falls
Contagion
spreads crisis
through
financial and
economic
links;
speculation on
exit & breakup
"Sustainable" trend of
investment assuming a
share in GDP of 21-22%
3,039
Gap compared
to sustainable trend
3,021
2,869
370
2,714
2,640
2,527
230
2,717
2,657 2,659
2,543
2,647
2,606
2,567
2,528
2,416
Real gross fixed capital formation – Observed trend vs. "sustainable" level
EU-28, in 2013 prices, € bn
•Crisis: What went wrong?
Macroeconomic perspective
•
•
•
•
•
•
Fundamental (Structural) issue of misallocation of resources
Bubbles
Pro-cyclical (excessive) government spending
Excessive external deficits (excessive consumption)
Excessive leverage (borrowing) of the financial sector
Aid to banks, loss of tax revenue due to recession + fiscal stimulus > public
debt
Economic and Monetary Union
Economic
Monetary
Deteriorating competitiveness in the run-up to the crisis
150
140
Unit Labour Cost, year 2000 = 100
130
120
110
100
90
2000
2001
2002
DE
2003
IE
2004
2005
EL
2006
ES
2007
FR
2008
IT
2009
2010
2011
AT
Did we have tools to monitor ULC developments previously?
Do we have them now?
Source: AMECO
PT
2012
2013
EA-18
2014
•EU economic governance: Macroeconomic Imbalance
Procedure
•Since 2011, to monitor and correct emerging imbalances
o
Asset bubbles, excessive private sector indebtedness, deteriorating
competitiveness in real economy
o
Preventive

Alert Mechanism Report

In-Depth Reviews

MIP-related recommendations
o
Corrective

Excessive Imbalance Procedure

Possibility of fines
•… but the need for improvement goes even further
• Labour market segmentation
• Ineffective taxation
• Barriers to entry for professional services
• Lack of competitive pressures in product markets
• Inefficient judicial systems
• What is setting back the growth of the economy & job creation
in your country?
• What do we do to ensure the implementation of reforms?
•European Semester
Whole Year Surveillance & Implementation of Reforms cycle
November
Autumn
Forecast
Commission's opinion on draft
budgetary plans
15th October
Winter
Forecast
15th April
Stability and Convergence Programmes (SCPs)
National Reform Programmes (NPRs)
Country-Specific
Recommendations (CSRs)
May/July
Including fiscal, Imbalances, Structural
Reforms & Europe 2020 targets
Spring
Forecast
•Major reform priorities addressed in the current Semester
Fiscal Consolidation
Long-term sustainability
Taxation
Banking
Housing
Access to finance
ALMP & participation
Wage setting
Education
Social polices
Childcare
2013
Innov. & competitiveness
2014
.
Health care
Product market
reforms
Human capital and social
policies
Labour
market
reforms
Financial sector
Public finance
Number of CSRs in 2013 and 2014, by policy area
Public administration
Competition
Energy, networks
0
5
10
15
20
25
30
The implementation of the reforms so far has been mixed
wide divergences between the sectors/priorities, even wider divergences between MS
Average implementation of 2013 CSRs by policy area and by country
(100% = full implementation score)
70%
Financial sector
60%
Public finance
50%
Product market reforms
40%
30%
Labour market reforms
20%
Human capital and social policies
10%
Public administration
Source: Commission services
40%
50%
27
FI
ES
NL
EE
DK
LV
PL
AT
LT
SE
FR
SI
DE
SK
BE
IT
CZ
LU
UK
30%
MT
20%
RO*
10%
HU
0%
BG
0%
The percentages are based on an unweighted average of implementation
scores across CSRs, building on 5 progress categories.
•The two arms: Stability and Growth Pact
• to safeguard sound public finances
• Was there all the time
• Each Member State required to stay within the limits of
(defined in the TFEU):

government deficit (3% of GDP) & debt (60% of GDP)

Preventive Arm
– Submission of Annual Stability and Convergence Programmes
– Country-Specific Medium-Term Budgetary Objectives – MTO

Corrective ('Dissuasive') Arm
– Excessive Deficit Procedure – EDP
– Sanctions
•Six Pack, Two Pack & Fiscal Compact - enhanced fiscal
surveillance & coordination
• Preventive arm
o Expenditure benchmark to prevent that spending rises faster than medium-term potential GDP
•
o Balanced Budget Rule - structural deficit must not exceed 0.5% of GDP (or 1.0% of GDP if debt significantly <
60% of GDP)
• Corrective arm
o Debt criterion became enforceable
→
→
EDP can be launched on deficit and debt criterion
1/20th target - debt must decrease by 1/20th of GDP annually if > 60%
• Strengthened budgetary surveillance
o Draft budgetary plans submitted to the Commission
o Common budgetary timeline for an enhanced coordination
o Independent Fiscal Councils established in the Member States
• Strengthened enforcement
o For MS in EDP the deposits and fines kick in earlier
o Reverse QMV for graduated financial sanctions
30 of 53
SGP flexibility
Preventive arm
Corrective arm
Investment
Allowed deviation from the EFSI contribution SGPMTO or the adjustment neutral
path towards it
Structural
reform
Allowed deviation from the Whether to open or not an
MTO or the adjustment EDP (relevant factors)
path towards it
-Deficit (if breach is close
and temporary)
-Debt
EDP recommendation
-Setting the deadline and
length of poss. Extension
Cyclical
conditions
Modulation of fiscal effort
with economic conditions
(and sustainability risks)
Effective action
methodology
Severe economic downturn clause: redefining fiscal
effort
Cyclical conditions – preventive arm
• Modulation of fiscal effort with economic conditions and sustainability
risk
• Avoiding discontinuities
Condition
Exceptionally
bad times
Very bad
times
Real growth <0
or output gap <-4
-4 ≤ output
gap <-3
Required annual fiscal adjustment*
Debt below 60% and
Debt above 60% or
no sustainability risk
sustainability risk
No adjustment needed
0
0.25
Bad times
-3 ≤ output
gap < -1.5
0 if growth below
potential, 0.25 if growth
above potential
0.25 if growth below
potential, 0.5 if growth
above potential
Normal times
-1.5 ≤ output
gap < 1.5
0.5
> 0.5
Good times
output gap
≥ 1.5%
> 0.5 if growth below
potential, ≥ 0.75 if growth
above potential
≥ 0.75 if growth below
potential, ≥ 1 if growth
above potential

Capital Markets Union, Energy Union

Tax transparency
Other issues and questions
 Trade-off or complementarity fiscal adjustment and structural reforms?
 What incentives for structural reforms? (contractual arrangements?)
 How to strengthen policy integration in labour market and taxation?
 Democratic legitimacy: roles of the European and National Parliaments?
 Commissioner be able to veto national budgets?
 Establishment of European Minister of Economy and Finance?
 What about Eurobonds?
 EU / euro area?
A blueprint for a deep and genuine EMU
Within the next 18 months
18 months to 5 years
Beyond 5
years
SHORT TERM
MEDIUM TERM
LONGER
TERM
ALL ALONG THE PROCESS
Launching a European debate
Secondary
law
Treaty
change
1. Full implementation of European Semester and six-pack and quick agreement on
and implementation of two-pack

2. Banking Union: Financial regulation and supervision: quick agreement on proposals
for a Single Rulebook and Single Supervisory Mechanism

3. Banking Union: Single Resolution Mechanism

4. Quick decision on the next Multi-annual Financial Framework

5. Ex-ante coordination of major reforms and the creation of a Convergence and
Competitiveness Instrument (CCI)

6. Promoting investment in the Euro Area in line with the Stability and Growth Pact

7. External representation of the Euro Area

1. Further reinforcement of budgetary and economic integration


2. Proper fiscal capacity for the Euro Area building on the CCI


3. Redemption fund

4. Eurobills

1. Full Banking Union

2. Full fiscal and economic union
Political union: Commensurate progress on democratic legitimacy and
accountability
36



Flash EB 405, October 2014
Flash EB 405, October 2014
High agreement with the implementation of various economic
reforms, except for the increase of retirement age (27%)
Majority in all euro area countries disagree with increase of the
retirement age
Thank you for your attention !